Information Letter 08-23-2002

Dear Commissioner Oxendine:

This is in response to a request from Mr. Steven Sprouse, on behalf of the Georgia Department of Insurance (GDI), for information regarding the applicability of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, Mr.Sprouse asked for the view of the Department of Labor (Department) on whether section 514 of Title I of ERISA precludes the GDI from regulating the International Union of Industrial and Independent Workers Benefit Fund (IUIIW Fund). The following summary is based on information we received from the GDI; it should not be treated as factual findings of the Department.

The International Union of Industrial and Independent Workers (IUIIW) was formed in September of 1997. The IUIIW was established for the purpose, "in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, and conditions of work for IUIIW members". Membership of the IUIIW consists of "members", defined as individuals working in bargaining units represented by the IUIIW in collective bargaining, and "beneficial members", defined as individuals not currently part of an organized bargaining unit and with respect to whom the IUIIW has no obligation to collectively bargain. "Beneficial membership" is open to any person who is interested in advancing the cause of organized labor but who is not eligible for membership as a member of a bargaining unit represented by the IUIIW in collective bargaining.

The IUIIW Fund was established on June 1, 2000, to provide health care and other welfare benefits to participating IUIIW members and beneficial members. The information we received indicates that the IUIIW Fund enters into "participation agreements" with employers. The employers agree to make contributions to the IUIIW Fund for the IUIIW Fund to provide health and other welfare benefits to the employer's participating employees who are IUIIW members or beneficial members. The overwhelming majority of participants in the IUIIW Fund are beneficial members, rather than members in bargaining units represented by the IUIIW in collective bargaining. The IUIIW Fund offers a variety of benefit options, including medical, prescription, dental, vision, and life insurance coverage. Some of these benefits are fully insured, e.g., life insurance through U.S. Life and prescription coverage through MIM-Scrip, and some are self-insured or partially self-insured, e.g., medical, dental, and vision. You represent that employees of more than two employers receive benefits from the IUIIW Fund. In this regard, the information you provided indicates that employees of as many as 352 or more employers in Georgia have been covered by the IUIIW Fund.

Pursuant to the IUIIW Fund's Agreement and Declaration of Trust, there are four trustees responsible for managing the IUIIW Fund. These trustees are charged with the duties necessary to operate and maintain the IUIIW Fund, including receiving, holding, investing, and distributing the assets of the IUIIW Fund, and selecting service providers to assist them with their duties. In this regard, the trustees have engaged Oak Tree Administrators, Inc., to handle day-to-day administrative matters, such as assisting enrollees with enrollment applications, processing and paying benefit claims, and furnishing plan related documents to enrollees. Two trustees are appointed by the IUIIW. The materials we received indicates that an entity referred to as the "Contributing Employers Association" (CEA) appoints the other two trustees. We did not see evidence of any bylaws, constitution, articles of incorporation, or other similar documents for the CEA, but some of the materials we received suggest that the CEA's membership consists of only employers of beneficial members.

Section 514(a) of Title I of ERISA generally preempts state law purporting to regulate an employee benefit plan covered under that title. There are, however, exceptions to this general preemption provision. The relevant exception for purposes of your inquiry is in subsection 514(b)(6)(A), which allows state insurance regulation of MEWAs and MEWA trusts without regard to whether they are employee benefit plans covered by Title I of ERISA. Section 3(40)(A) of ERISA defines the term MEWA, in relevant part, to mean: "[A]n employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in [section 3(1) of ERISA] to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained -- (i) under or pursuant to one or more agreements which the Secretary [of Labor] finds to be collective bargaining agreements, (ii)by a rural electric cooperative, or (iii) by a rural telephone cooperative association."

A review of our files indicates that the Department has not made any finding as to whether the IUIIW Fund is established or maintained pursuant to one or more collective bargaining agreements for purposes of section 3(40)(A). It has been the Department's position that, in the absence of such a finding, a plan or other arrangement that provides welfare benefits to the employees of two or more employers, and not otherwise excepted from the MEWA definition, is a MEWA. Further, nothing in the material we received suggested that the IUIIW Fund is established or maintained by a rural electric cooperative or rural telephone cooperative association as defined in section 3(40) of ERISA.

If a MEWA is not itself an ERISA covered plan, which is very often the case, ERISA's preemption provisions do not prohibit States from regulating the MEWA in accordance with applicable state insurance law. In such cases, the Department would view each employer member that uses the MEWA to provide welfare benefits to its employees as having established a separate welfare benefit plan subject to ERISA. In effect, the MEWA would be merely a vehicle for funding and administering the provision of benefits (like an insurance company) to a number of separate ERISA-covered plans. The Department has concurrent jurisdiction with the States to regulate persons who operate such MEWAs to the extent those persons have responsibility for, or control over, the assets of ERISA plans that participate in the MEWA. When the sponsor of an ERISA-covered plan uses a MEWA to provide health care coverage for its employees, the assets of the MEWA generally are considered to include the assets of the plan, unless the MEWA is a state licensed insurance company. In exercising discretionary authority or control over plan assets, such as paying administrative expenses and making benefit claim determinations, the person or persons operating the MEWA would be performing fiduciary acts governed by ERISAs fiduciary provisions.

If the MEWA is itself an ERISA-covered plan, it would be subject to the provisions of ERISA governing employee welfare benefit plans, and would also be subject to a broad range of state insurance laws.

Section 514(b)(6)(A)(i) of ERISA provides that, in the case of a MEWA that is itself a plan and is fully insured, states may apply to and enforce against the MEWA any state insurance law requiring the maintenance of specific reserves or contributions designed to ensure that the MEWA will be able to satisfy its benefit obligations in a timely fashion. In the Department's view, section 514(b)(6)(A)(i) enables states to subject such MEWAs to licensing, registration, certification, financial reporting, examination, audit and any other requirement of state insurance law necessary to ensure compliance with state insurance reserve, contribution and funding requirements. Section 514(b)(6)(D) provides that a MEWA is "fully insured" for this purpose, "only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service or insurance organization, qualified to conduct business in a State."

In the case of a MEWA that is itself a plan but is not fully insured, section 514(b)(6)(A)(ii) allows any state insurance laws to be applied to the MEWA subject only to the limitation that the law is "not inconsistent" with Title I of ERISA. The Department has expressed the view that a state insurance law would not be inconsistent with Title I if it requires a MEWA to meet more stringent standards of conduct, or to provide greater protection to plan participants and beneficiaries than required by ERISA. The Department has also expressed the view that a state law regulating insurance would not, in and of itself, be inconsistent with the provisions of Title I if it requires a license or certificate of authority as a condition to transacting business, requires maintenance of specific reserves or contributions designed to ensure that the MEWA will be able to satisfy its benefit obligations in a timely fashion, requires financial reporting, examination or audit, or subjects persons who fail to comply with such requirements to taxation, fines, civil penalties, and injunctive relief.

On the basis of the information we received, it appears that the IUIIW Fund is being operated for the purpose of providing health and other welfare benefits described in section 3(1) of ERISA to employees of two or more employers. As noted above, the IUIIW Fund is not established or maintained under or pursuant to one or more agreements that the Secretary of Labor has found under ERISA section 3(40)(A)(i) to be collective bargaining agreements, or by a rural electric cooperative or rural telephone cooperative association as defined in section 3(40) of ERISA. Accordingly, in the Departments view, Title I of ERISA does not preclude Georgia from applying its insurance law to the IUIIW Fund as a MEWA in accordance with section 514(b)(6)(A) of ERISA, as described above.⁽¹⁾

We understand the IUIIW contends the Department's Advisory Opinion (AO) 91-06A (Jan. 15, 1991) compels the conclusion that the IUIIW Fund is not a MEWA. The Departments ERISA advisory opinions are issued under ERISA Procedure 76-1 (41 Fed. Reg. 36281) and, accordingly, are subject to the provisions of that procedure, including section 10 thereof concerning the effect of advisory opinions. Section 10 of ERISA Procedure 76-1 states, in pertinent part, that advisory opinions apply "only to the situation described therein", and further states that "[o]nly the parties described in the request for opinion may rely on the opinion ...." The IUIIW Fund and the IUIIW were not the parties described in AO 91-06A, and the IUIIW Fund and the IUIIW arrangement are not the situation described in that opinion. Furthermore, subsequent to the issuance of AO 91-06A, the Department proposed a regulation to facilitate determinations as to whether a plan or other arrangement would be treated as established or maintained under or pursuant to one or more collective bargaining agreements for purposes of the exception under ERISA section 3(40)(A)(i). See 65 Fed. Reg. 64482 (Oct. 27, 2000). Although the Department is in the process of finalizing the regulation, we note, based on the information we have received, that the IUIIW arrangement would not appear to meet the conditions in the proposal.

We hope this is of assistance to you. Should you have any questions concerning this letter, please contact me at 202.693.8523.